Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark one)

 

 

x

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

For the quarterly period ended June 30, 2008.

 

 

 

or

 

 

 

o

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

For the transition period from                     to                     .

 

Commission file number: 001-32324

 


 

U-STORE-IT TRUST

(Exact Name of Registrant as Specified in its Charter)

 

Maryland

 

20-1024732

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

 

 

50 Public Square, Suite 2800

 

 

Cleveland, Ohio

 

44113

(Address of Principal Executive Offices)

 

(Zip Code)

 

(216) 274-1340

(Registrant’s Telephone Number, Including Area Code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

Non-accelerated filer o

 

Smaller reporting company o

 

 

 

 

(Do not check if a smaller

 

 

 

 

 

 

reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding at August 5, 2008

common stock, $.01 par value

 

57,833,192

 

 

 



Table of Contents

 

U-STORE-IT TRUST

TABLE OF CONTENTS

 

Part I. FINANCIAL INFORMATION

 

 

Item 1.  Financial Statements

3

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

29

 

Item 4.  Controls and Procedures

29

Part II. OTHER INFORMATION

 

 

Item 1.  Legal Proceedings

31

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

31

 

Item 4.  Submission of Matters to a Vote of Security Holders

31

 

Item 6.  Exhibits

32

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by U-Store-It Trust (“we,” “us,” “our” or the “Company”), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to:

 

·

national and local economic, business, real estate and other market conditions;

 

 

·

the competitive environment in which we operate;

 

 

·

the execution of our business plan;

 

 

·

financing risks, including the risk of overleverage and the corresponding risk of default on our mortgage loans and other debt;

 

 

·

increases in interest rates and operating costs;

 

 

·

counterparty non-performance related to the use of derivative financial instruments;

 

 

·

our ability to maintain our status as a real estate investment trust (“REIT”) for federal income tax purposes;

 

 

·

acquisition and development risks;

 

 

·

changes in real estate and zoning laws or regulations;

 

 

·

risks related to natural disasters;

 

 

·

potential environmental and other liabilities;

 

 

·

other factors affecting the real estate industry generally or the self-storage industry in particular; and

 

 

·

other risks identified in our Annual Report on Form 10-K and, from time to time, in other reports we file with the Securities and Exchange Commission (the “SEC”) or in other documents that we publicly disseminate.

 

We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required in securities laws.

 

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Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

U-STORE-IT TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2008

 

2007

 

ASSETS

 

 

 

 

 

Storage facilities

 

$

1,925,616

 

$

1,916,396

 

Accumulated depreciation

 

(302,356

)

(269,278

)

 

 

1,623,260

 

1,647,118

 

Cash and cash equivalents

 

651

 

4,517

 

Restricted cash

 

18,199

 

15,818

 

Loan procurement costs - net of amortization

 

5,284

 

6,108

 

Other assets - net of amortization

 

10,031

 

14,270

 

 

 

 

 

 

 

Total assets

 

$

1,657,425

 

$

1,687,831

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Revolving credit facility

 

$

212,200

 

$

219,000

 

Unsecured term loan

 

200,000

 

200,000

 

Secured term loan

 

57,419

 

47,444

 

Mortgage loans and notes payable

 

556,441

 

561,057

 

Accounts payable and accrued expenses

 

28,098

 

33,623

 

Due to related parties

 

 

110

 

Distributions payable

 

11,324

 

11,300

 

Deferred revenue

 

10,908

 

10,148

 

Security deposits

 

522

 

548

 

Total liabilities

 

1,076,912

 

1,083,230

 

 

 

 

 

 

 

Minority interests

 

47,124

 

48,982

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

Common shares $.01 par value, 200,000,000 shares authorized, 57,620,495 and 57,577,232 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively

 

576

 

576

 

Additional paid in capital

 

799,300

 

797,940

 

Accumulated other comprehensive loss

 

(713

)

(1,664

)

Accumulated deficit

 

(265,774

)

(241,233

)

Total shareholders’ equity

 

533,389

 

555,619

 

Total liabilities and shareholders’ equity

 

$

1,657,425

 

$

1,687,831

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

 

U-STORE-IT TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2008

 

2007

 

2008

 

2007

 

REVENUES

 

 

 

 

 

 

 

 

 

Rental income

 

$

56,158

 

$

50,965

 

$

112,191

 

$

100,950

 

Other property related income

 

4,249

 

4,387

 

7,921

 

8,612

 

Other - related party

 

 

122

 

 

239

 

Total revenues

 

60,407

 

55,474

 

120,112

 

109,801

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

Property operating expenses

 

25,494

 

21,890

 

50,757

 

44,554

 

Property operating expenses - related party

 

 

14

 

 

51

 

Depreciation

 

20,251

 

16,562

 

40,153

 

33,088

 

General and administrative

 

6,469

 

5,648

 

11,964

 

11,563

 

General and administrative - related party

 

 

118

 

 

219

 

Total operating expenses

 

52,214

 

44,232

 

102,874

 

89,475

 

OPERATING INCOME

 

8,193

 

11,242

 

17,238

 

20,326

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

(12,965

)

(12,955

)

(26,791

)

(25,732

)

Loan procurement amortization expense

 

(486

)

(445

)

(957

)

(889

)

Interest income

 

32

 

91

 

91

 

204

 

Other

 

71

 

 

139

 

(6

)

Total other expense

 

(13,348

)

(13,309

)

(27,518

)

(26,423

)

LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS

 

(5,155

)

(2,067

)

(10,280

)

(6,097

)

MINORITY INTERESTS

 

407

 

168

 

821

 

500

 

LOSS FROM CONTINUING OPERATIONS

 

(4,748

)

(1,899

)

(9,459

)

(5,597

)

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

Income from operations

 

145

 

267

 

366

 

631

 

Gain on disposition of discontinued operations

 

5,308

 

2,122

 

5,880

 

2,122

 

Minority interest attributable to discontinued operations

 

(442

)

(195

)

(506

)

(226

)

Income from discontinued operations

 

5,011

 

2,194

 

5,740

 

2,527

 

NET INCOME (LOSS)

 

$

263

 

$

295

 

$

(3,719

)

$

(3,070

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share from continuing operations

 

$

(0.08

)

$

(0.03

)

$

(0.16

)

$

(0.09

)

Basic and diluted earnings per share from discontinued operations

 

0.09

 

0.03

 

0.10

 

0.04

 

Basic and diluted income (loss) per share

 

$

0.01

 

$

 

$

(0.06

)

$

(0.05

)

 

 

 

 

 

 

 

 

 

 

Weighted-average basic and diluted shares outstanding

 

57,620

 

57,438

 

57,606

 

57,429

 

 

 

 

 

 

 

 

 

 

 

Distributions declared per common share and unit

 

$

0.18

 

$

0.29

 

$

0.36

 

$

0.58

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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U-STORE-IT TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2008

 

2007

 

Operating Activities

 

 

 

 

 

Net loss

 

$

(3,719

)

$

(3,070

)

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

41,127

 

34,312

 

Gain on disposition of discontinued operations

 

(5,880

)

(2,122

)

Equity compensation expense

 

1,669

 

754

 

Accretion of fair market value of debt

 

(266

)

(144

)

Minority interests

 

(315

)

(274

)

Changes in other operating accounts:

 

 

 

 

 

Other assets

 

1,430

 

(4,651

)

Accounts payable and accrued expenses

 

(5,905

)

(891

)

Other liabilities

 

749

 

642

 

Net cash provided by operating activities

 

$

28,890

 

$

24,556

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Acquisitions, additions and improvements to storage facilities

 

(22,613

)

(25,503

)

Proceeds from sales of properties

 

16,173

 

12,161

 

Increase in restricted cash

 

(2,381

)

(2,739

)

Net cash used in investing activities

 

$

(8,821

)

$

(16,081

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Proceeds from:

 

 

 

 

 

Revolving credit facility

 

36,700

 

36,500

 

Secured term loan

 

9,975

 

 

Principal payments on:

 

 

 

 

 

Revolving credit facility

 

(43,500

)

(19,500

)

Mortgage loans and notes payable

 

(4,350

)

(5,359

)

Distributions paid to shareholders

 

(20,799

)

(33,373

)

Distributions paid to minority partners

 

(1,828

)

(3,016

)

Loan procurement costs

 

(133

)

 

Net cash used in financing activities

 

$

(23,935

)

$

(24,748

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(3,866

)

(16,273

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

4,517

 

19,716

 

Cash and cash equivalents at end of period

 

$

651

 

$

3,443

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

27,231

 

$

26,032

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

Additions to storage facilities

 

$

1,023

 

$

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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U-STORE-IT TRUST AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.  ORGANIZATION AND NATURE OF OPERATIONS

 

U-Store-It Trust, a Maryland real estate investment trust (collectively with its subsidiaries, “we” or the “Company”), is a self-administered and self-managed real estate investment trust, or REIT, active in acquiring, developing and operating self-storage properties for business and personal use under month-to-month leases.  As of June 30, 2008, the Company owned 403 self-storage facilities (collectively, the “Properties”) containing an aggregate of approximately 25.9 million square feet.  The Properties are located in 26 states throughout the United States.

 

The Company owns substantially all of its assets through U-Store-It, L.P., a Delaware limited partnership (the “Operating Partnership”).  The Company is the sole general partner of the Operating Partnership and, as of June 30, 2008, owned a 91.9% interest in the Operating Partnership.  The Company manages its assets through YSI Management LLC (the “Management Company”), a wholly owned subsidiary of the Operating Partnership.  The Company owns 100% of U-Store-It Mini Warehouse Co. (the “TRS”), which it has elected to treat as a taxable REIT subsidiary. In general, a taxable REIT subsidiary may perform non-customary services for tenants, hold assets that the Company cannot hold directly and generally may engage in any real estate or non-real estate related business.

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods presented in accordance with generally accepted accounting principles (“GAAP”). Accordingly, readers of this Quarterly Report on Form 10-Q should refer to the Company’s audited financial statements prepared in accordance with GAAP, and the related notes thereto, for the year ended December 31, 2007, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 as certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the SEC. The results of operations for each of the three and six months ended June 30, 2008 and 2007 are not necessarily indicative of the results of operations to be expected for any future period or the full year.

 

New Accounting Pronouncements

 

In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (FAS 162). Under SFAS 162 , the GAAP hierarchy will now reside in the accounting literature established by the FASB. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements in conformity with GAAP. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” We believe that the adoption of this standard on its effective date will not have a material effect on our consolidated financial statements.

 

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement No. 133 (“SFAS 161”).  SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and the impact of derivative instruments and related hedged items on an entity financial position, financial performance and cash flows.  SFAS 161 is effective on January 1, 2009.  We believe that the adoption of this standard on January 1, 2009 will not have a material effect on our consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“FAS 141(R)”).  SFAS 141(R) establishes principles and requirements for recognizing identifiable assets acquired, liabilities assumed, noncontrolling interest in the acquiree, goodwill acquired in the combination or the gain from a bargain purchase, and disclosure requirements.  Under this revised

 

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statement, all costs incurred to effect an acquisition will be recognized separately from the acquisition.  Also, restructuring costs that are expected but the acquirer is not obligated to incur will be recognized separately from the acquisition.  FAS 141(R) is effective for the Company beginning with its quarter ending March 31, 2009.  The Company is currently assessing the potential impact on our consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”).  FAS 160 requires that ownership interests in subsidiaries held by parties other than the parent are to be reported as equity.  In addition, it requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the income statement.  SFAS 160 is effective for the Company beginning with its quarter ending March 31, 2009.  The Company is currently assessing the potential impact on our consolidated financial statements.

 

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value, with unrealized gains and losses related to these financial instruments reported in earnings at each subsequent reporting date.  This statement was effective on January 1, 2008.  We have not elected the fair value option for any of our existing financial instruments on the effective date and have not determined whether or not we will elect this option for any eligible financial instruments we acquire in the future.

 

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement was effective in fiscal years beginning after November 15, 2007.  The FASB has deferred the implementation of the provisions of SFAS No. 157 relating to certain nonfinancial assets and liabilities until January 1, 2009.  This standard did not materially affect how we determine fair value, but resulted in certain additional disclosures.

 

3.  STORAGE FACILITIES

 

The value of our real estate assets is summarized as follows:

 

 

 

June 30,

 

December 31,

 

 

 

2008

 

2007

 

 

 

(in thousands)

 

 

 

 

 

 

 

Land

 

$

392,915

 

$

393,715

 

Buildings and improvements

 

1,332,484

 

1,324,168

 

Equipment

 

196,910

 

193,031

 

Construction in progress

 

3,307

 

5,482

 

Total

 

1,925,616

 

1,916,396

 

Less accumulated depreciation

 

(302,356

)

(269,278

)

Storage facilities — net

 

$

1,623,260

 

$

1,647,118

 

 

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The following table summarizes our acquisition and disposition activity during the period January 1, 2008 to June 30, 2008:

 

Facility/Portfolio

 

Location
(state abbreviation)

 

Transaction Date

 

Total Number
of Facilities

 

Purchase / Sale Price

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

2008 Acquisitions

 

 

 

 

 

 

 

 

 

 

Uptown Asset

 

Washington, DC

 

January 2008

 

1

 

 

$

13,300

 

 

 

 

 

 

 

 

 

 

 

 

2008 Dispositions

 

 

 

 

 

 

 

 

 

 

Baton Rouge/Prairieville Assets

 

LA

 

June 2008

 

2

 

 

$

5,400

 

Linden Asset

 

Linden, NJ

 

June 2008

 

1

 

 

2,825

 

Edicott Asset

 

Union, NY

 

May 2008

 

1

 

 

2,250

 

Lakeland Asset

 

Lakeland, FL

 

April 2008

 

1

 

 

2,050

 

77th Street Asset

 

Miami, FL

 

March 2008

 

1

 

 

2,200

 

Leesburg Asset

 

Leesburg, FL

 

March 2008

 

1

 

 

2,400

 

 

 

 

 

 

 

7

 

 

$

17,125

 

 

The following table summarizes the change in number of self-storage facilities from January 1, 2007 through June 30, 2008:

 

 

 

Six Months Ending

 

Year Ending

 

 

 

June 30, 2008

 

December 31, 2007

 

Balance - Beginning of year

 

409

 

 

399

 

 

Facilities acquired

 

1

 

 

17

 

 

Facilities consolidated

 

 

 

(2

)

 

Facilities sold

 

(7

)

 

(5

)

 

Balance - End of period

 

403

 

 

409

 

 

 

4.  INTANGIBLE ASSETS

 

During the year ended December 31, 2007, the Company acquired finite-lived intangible assets valued at approximately $6.8 million as part of its 2007 acquisitions.  These assets represent the value of in-place leases at the time of acquisition.  The Company has recognized $5.7 million of amortization since the intangible assets were acquired in 2007, of which $1.7 million and $3.4 million was recognized during three and six months ended June 30, 2008, respectively.  The estimated life of these assets is 12 months and the estimated remaining amortization expense that will be recognized during 2008 is $1.1 million.

 

During the quarter ended March 31, 2008, the Company acquired a finite-lived intangible asset valued at approximately $1.0 million as part of its acquisition of one self-storage facility.  This asset represents the value of in-place leases at the time of acquisition.  The Company recognized amortization expense related to this asset of $0.3 million and $0.5 million during three and six months ended June 30, 2008, respectively.  The estimated life of this asset is 12 months and the estimated remaining amortization expense that will be recognized during 2008 is $0.5 million, with the reminder to be recognized during 2009.

 

5.  REVOLVING CREDIT FACILITY, UNSECURED TERM LOAN AND SECURED TERM LOAN

 

As of June 30, 2008, the Company and its Operating Partnership had in place a three-year $450 million unsecured credit facility, which was entered into in November 2006, including $200 million in an unsecured term loan and $250 million in unsecured revolving loans. The outstanding balance on the Company’s credit facility at June 30, 2008 was $412.2 million and was comprised of $200 million of unsecured term loan borrowings and $212.2 million of unsecured revolving loans.  Approximately $37.8 million was available under the Company’s credit facility at June 30, 2008.  Borrowings under the credit facility bear interest, at our option, at either an alternative base rate or a Eurodollar rate, in each case, plus an applicable margin based on our leverage ratio or our credit rating.  The alternative base interest rate is a fluctuating rate equal to the higher of the prime rate or the sum of the federal funds effective rate plus 50 basis points.  The applicable margin for the alternative base rate will vary from 0.00% to 0.50% depending on

 

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our leverage ratio prior to achieving an investment grade rating, and will vary from 0.00% to 0.25% depending on our credit rating after achieving an investment grade rating.  The Eurodollar rate is a rate of interest that is fixed for interest periods of one, two, three or six months based on the LIBOR rate determined two business days prior to the commencement of the applicable interest period.  The applicable margin for the Eurodollar rate will vary from 1.00% to 1.50% depending on our leverage ratio prior to achieving an investment graded rating, and will vary from 0.425% to 1.00% depending on our credit rating after achieving an investment grade rating.  This credit facility is scheduled to terminate on November 20, 2009, with an option for the Company to extend the termination date to November 20, 2010. At June 30, 2008, borrowings under the unsecured credit facility had a weighted average interest rate of 4.01%.

 

On September 14, 2007, the Company and its Operating Partnership entered into a credit agreement that allowed for total secured term loan borrowings of $50.0 million and subsequently amended the agreement on April 3, 2008 to allow for total secured term loan borrowings of $57.4 million.  The term loans mature on November 20, 2009, subject to extension in the sole discretion of the lenders. Each term loan bears interest at either an alternative base rate or a Eurodollar rate, at our option, in each case plus an applicable margin at terms identical to the unsecured revolving credit facility.  As of June 30, 2008, there were two term loans outstanding totaling $57.4 million.  At June 30, 2008, the outstanding term loans had a weighted average interest rate of 4.09%.  The outstanding term loans are secured by a pledge by our Operating Partnership of all equity interests in YSI RT LLC, the wholly-owned subsidiary of the Operating Partnership that acquired eight self-storage facilities in September 2007 and one self-storage facility in May 2008. The nine YSI RT LLC assets had a net book value of approximately $72.5 million at June 30, 2008.

 

6.  MORTGAGE LOANS AND NOTES PAYABLE

 

The Company’s mortgage loans and notes payable are summarized as follows:

 

 

 

Carrying Value as of:

 

 

 

 

 

 

 

June 30,

 

December 31,

 

Effective Interest

 

Maturity

 

Mortgage Loan

 

2008

 

2007

 

Rate

 

Date

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acq IV

 

$

2,325

 

$

2,359

 

7.71

%

Dec-08

 

Acq VI

 

1,724

 

1,746

 

8.43

%

Aug-09

 

YSI III

 

85,877

 

86,713

 

5.09

%

Nov-09

 

YSI I

 

85,949

 

86,770

 

5.19

%

May-10

 

YSI IV

 

6,189

 

6,227

 

5.25

%

Jul-10

 

YSI XXV

 

8,148

 

8,201

 

5.00

%

Oct-10

 

YSI XXVI

 

9,842

 

9,956

 

5.00

%

Oct-10

 

YSI II

 

86,039

 

86,843

 

5.97

%

Nov-10

 

Promissory notes

 

88

 

92

 

5.97

%

Nov-10

 

YSI XII

 

1,580

 

1,599

 

5.33

%

Jan-11

 

YSI XIII

 

1,358

 

1,374

 

5.97

%

Sep-11

 

YSI VI

 

79,101

 

79,645

 

5.97

%

Sep-11

 

YASKY

 

80,000

 

80,000

 

5.13

%

Aug-12

 

USIFB

 

4,777

 

4,651

 

6.35

%

Oct-12

 

YSI XIV

 

1,886

 

1,909

 

5.97

%

Jan-13

 

YSI VII

 

3,252

 

3,280

 

6.50

%

Jun-13

 

YSI VIII

 

1,858

 

1,874

 

6.50

%

Jun-13

 

YSI IX

 

2,044

 

2,062

 

6.50

%

Jun-13

 

YSI XVII

 

4,422

 

4,477

 

6.32

%

Jul-13

 

YSI XXVII

 

540

 

547

 

5.59

%

Nov-13

 

YSI XXX

 

7,916

 

8,024

 

5.59

%

Nov-13

 

YSI XI

 

2,577

 

2,605

 

5.87

%

Dec-13

 

YSI V

 

3,402

 

3,440

 

5.25

%

Jan-14

 

YSI XXVIII

 

1,658

 

1,676

 

5.59

%

Feb-14

 

YSI X

 

4,271

 

4,303

 

5.87

%

Jan-15

 

YSI XV

 

1,980

 

1,999

 

6.41

%

Jan-15

 

YSI XX

 

66,763

 

67,545

 

5.97

%

Nov-15

 

Unamortized fair value

 

875

 

1,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total mortgage loans and notes payable

 

$

556,441

 

$

561,057

 

 

 

 

 

 

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The following table presents the future principal payment requirements on outstanding mortgage loans and notes payable at June 30, 2008 (in thousands):

 

2008

 

$

7,029

 

2009

 

94,434

 

2010

 

112,497

 

2011

 

88,194

 

2012

 

162,484

 

2013 and thereafter

 

90,928

 

Total mortgage payments

 

555,566

 

Plus: Unamortized debt premiums

 

875

 

Total mortgage indebtedness

 

$

556,441

 

 

7.  DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company’s derivative instruments are limited to interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure. The counterparties to these arrangements are major financial institutions with which the Company and its subsidiaries may also have other financial relationships. The Company is potentially exposed to credit loss in the event of non-performance by these counterparties. However, the Company does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Company does not hedge credit or property value market risks.

 

The Company formally assesses, both at inception of the hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in cash flows of the hedged item. If management determines that a derivative is highly-effective as a hedge, it accounts for the derivative using hedge accounting, pursuant to which gains or losses inherent in the derivative do not impact the Company’s results of operations.  If management determines that a derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively and will reflect such changes in its statement of operations realized and unrealized gains and losses in respect of the derivative.

 

The Company has entered into interest rate swap agreements that qualify and are designated as cash flow hedges designed to reduce the impact of interest rate changes on its variable rate debt.   Therefore, the interest rate swaps are recorded in the condensed and consolidated balance sheets at fair value and the related gains or losses are reflected in shareholders’ equity as Accumulated Other Comprehensive Loss.  These deferred gains and losses are amortized into interest expense during the period or periods in which the related interest payments affect earnings.  However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately.  Ineffectiveness was immaterial for all periods presented.

 

At June 30, 2008, the Company had interest rate swap agreements for notional principal amounts aggregating $300 million. The swap agreements effectively fix the 30-day LIBOR interest until November 2009.  The interest rate cap agreement effectively limited the interest rate on $40 million of credit facility borrowings at 5.50% per annum until it matured in June 2008.

 

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The following table summarizes the terms and fair values of the Company’s derivative financial instruments at June 30, 2008 (dollars in thousands):

 

 

 

 

 

Notional

 

 

 

 

 

 

 

Fair

 

Hedge Product

 

Hedge Type

 

Amount

 

Strike

 

Effective Date

 

Maturity

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cap

 

Cash flow

 

$

40,000

 

5.5000

%

12/21/2007

 

6/23/2008

 

$

 

Swap

 

Cash flow

 

$

50,000

 

4.7725

%

8/24/2007

 

11/20/2009

 

$

(1,156

)

Swap

 

Cash flow

 

$

25,000

 

4.7160

%

9/4/2007

 

11/20/2009

 

$

(560

)

Swap

 

Cash flow

 

$

25,000

 

2.3400

%

3/28/2008

 

11/20/2009

 

$

252

 

Swap

 

Cash flow

 

$

200,000

 

2.7625

%

5/28/2008

 

11/20/2009

 

$

867

 

 

8.  FAIR VALUE MEASUREMENTS

 

As stated in Note 2 “Summary of Significant Accounting Policies and Recent Accounting Pronouncements,” on January 1, 2008, the Company adopted the methods of fair value as described in SFAS No. 157 to value its financial assets and liabilities. As defined in SFAS No. 157, fair value is based on the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

 

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

 

Financial assets and liabilities carried at fair value as of June 30, 2008 are classified in the table below in one of the three categories described above (dollars in thousands):

 

 

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

Interest Rate Swap Derivative Liabilities

 

$

 

$

597

 

$

 

 

 

 

 

 

 

 

 

Total liabilities at fair value

 

$

 

$

597

 

$

 

 

For financial liabilities that utilize Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including LIBOR yield curves, bank price quotes for forward starting swaps, NYMEX futures pricing and common stock price quotes. Below is a summary of valuation techniques for Level 2 financial liabilities:

 

·                  Interest rate swap derivative assets and liabilities – valued using LIBOR yield curves at the reporting date. Counterparties to these contracts are most often highly rated financial institutions none of which experienced any significant downgrades in the three months ended June 30, 2008 that would reduce the receivable amount owed, if any, to the Company.

 

Although the Company has not elected the fair value option for financial assets and liabilities existing at January 1, 2008, any future transacted financial asset or liability will be evaluated for the fair value election as prescribed by SFAS No. 159 and fair valued under the provisions of SFAS No. 157.

 

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9.  MINORITY INTERESTS

 

Operating Partnership minority interests relate to the interests in the Operating Partnership that are not owned by the Company, and at each of June 30, 2008 and December 31, 2007 amounted to approximately 8.1% of the ownership of the Operating Partnership.  These minority interests were issued in the form of Operating Partnership units and were a component of the consideration the Company paid to acquire certain self-storage facilities. Limited partners who acquired Operating Partnership units have the right to require the Operating Partnership to redeem part or all of their Operating Partnership units for, at the Company’s option, an equivalent number of common shares of the Company or cash based upon the fair market value of an equivalent number of common shares of the Company. The market value of the Company’s common shares for this purpose will be equal to the average of the closing trading price of the Company’s common shares on the New York Stock Exchange for the 10 trading days before the date the Company receives the redemption notice.  As of June 30, 2008, the calculated aggregate redemption value of outstanding Operating Partnership units based upon the Company’s stock price was approximately $61.6 million.  The table below presents unit activity from December 31, 2007 through June 30, 2008:

 

 

 

Number of limited
partnership units

 

As of December 31, 2007

 

5,079,928

 

Units issued

 

 

Units redeemed

 

 

As of June 30, 2008

 

5,079,928

 

 

10.  RELATED PARTY TRANSACTIONS

 

Amsdell Settlement/Rising Tide Acquisition

 

On September 14, 2007, the Company settled all pending state and federal court litigation involving the Company and the interests of Robert J. Amsdell and Barry L. Amsdell (each a former trustee), Todd C. Amsdell (a former executive officer) and Kyle Amsdell, son of Robert and brother of Todd Amsdell (collectively, the “Amsdells”), and Rising Tide Development LLC, a company owned and controlled by Robert J. Amsdell and Barry L. Amsdell (“Rising Tide”).  The Board of Trustees of the Company, along with the Corporate Governance and Nominating Committee, approved the terms of the settlement.

 

In addition, on September 14, 2007, the Operating Partnership purchased 14 self-storage facilities from Rising Tide (the “Rising Tide Properties”) for an aggregate purchase price of $121 million pursuant to a purchase and sale agreement.  In connection with the settlement agreement and acquisition of the 14 self-storage facilities, the Company considered the provisions of EITF 04-01, Accounting for Pre-existing relationships between the Parties to a Business Combination, and determined that all consideration paid was allocable to the purchase of the storage facilities.

 

Pursuant to a Settlement Agreement and Mutual Release, dated August 6, 2007, (the “Settlement Agreement”) which was conditioned upon the acquisition of the 14 self-storage facilities from Rising Tide for $121 million, each of the parties to the agreement executed various agreements.  A summary of the various agreements follows:

 

·                  Standstill Agreement.  Robert J. Amsdell, Barry L. Amsdell and Todd C. Amsdell agreed they would not commence or participate in any proxy solicitation or initiate any shareholder proposal; take any action to convene a meeting of shareholders; or take any actions, including making any public or private proposal or announcement, that could result in an extraordinary corporate transaction relating to the Company.   Pursuant to its terms, the standstill was amended to terminate on April 20, 2008.

 

·                  First Amendment to Lease.  The Operating Partnership and Amsdell and Amsdell, an entity owned by Robert and Barry Amsdell, entered into a First Amendment to Lease which modified certain terms of all of the lease agreements the Operating Partnership has with Amsdell and Amsdell for office space in Cleveland, Ohio.  The First Amendment provided the Operating Partnership the ability to assign or sublease the office space previously used for its corporate office and certain operations.  Separately, Amsdell and Amsdell consented to the Operating Partnership’s proposed sublease to an unrelated party of approximately 22,000 square feet of office space covered by the aforementioned leases.

 

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·                  Termination of Option Agreement.  The Operating Partnership and Rising Tide entered into an Option Termination Agreement that terminated an Option Agreement dated October 27, 2004, by and between the Operating Partnership and Rising Tide.  The Option Agreement provided the Operating Partnership with an option to acquire Rising Tide’s right, title and interest to 18 properties, including:  the 14 Rising Tide Properties discussed above; three properties that the Operating Partnership acquired in 2005 pursuant to exercise of its option; and one undeveloped property that Rising Tide has the option to acquire and that was not acquired as a part of the purchase and sale agreement.

 

·                  Termination of Property Management Agreement, and Marketing and Ancillary Services Agreement.  Certain of the Company’s subsidiaries and Rising Tide entered into a Property Management Termination Agreement and a Marketing and Ancillary Services Termination Agreement. Under the Property Management Agreement, the Company provided property management services for the Rising Tide Properties for a fee equal to the greater of 5.35% of the gross revenues of each property or $1,500 per property per month.  Under the Marketing and Ancillary Services Agreement, the Company provided limited marketing and other miscellaneous services for the Rising Tide Properties.  In connection with the termination of the Property Management Agreement, expenses relating to property management will be prorated.

 

·                  Amendment of Employment and Non-Compete Agreements.  As part of the Settlement Agreement, the Company entered into a Modification of Noncompetition Agreement and Termination of Employment Agreement (each a “Modification of Noncompetition Agreement and Termination of Employment Agreement”) with each of Robert J. Amsdell and Todd C. Amsdell, and a Modification of Noncompetition Agreement (“Modification of Noncompetition Agreement”) with Barry L. Amsdell, which terminates and modifies specific provisions of the noncompetition agreement the Company has with each of them, dated October 27, 2004 (the “Original Noncompetition Agreements”).  The Original Noncompetition Agreements restrict the ability of Robert J., Barry L. and Todd C. Amsdell to compete with the Company for one year and their ability to solicit employees of the Company for two years from the date of their termination employment or resignation from service as a Trustee.  Pursuant to these modification agreements, Todd C. Amsdell will be able to compete with the Company, and Robert J. and Barry L. Amsdell will be able to (a) develop the one Rising Tide property that the Company did not acquire under the Purchase Agreement and (b) compete with respect to any property identified as part of a Section 1031 “like-kind exchange” referenced in the purchase agreement.  Further, each Original Noncompetition Agreement is modified to allow each of them to hire, for any purpose, any employee or independent contractor who was terminated, has resigned or otherwise left the employment or other service of the Company or any of its affiliates on or prior to June 1, 2007.

 

The Modification and Noncompetition Agreement and Termination of Employment Agreement with each of Robert J. Amsdell and Todd C. Amsdell also terminates the employment agreements the Company had with each of them, effective as of February 13, 2007 with respect to Robert J. Amsdell and February 19, 2007 with respect to Todd C. Amsdell.

 

Office Leases

 

During 2005 and 2006, the Operating Partnership entered into various office lease agreements with Amsdell and Amsdell.  Pursuant to these lease agreements, during 2006 we rented office space from Amsdell and Amsdell at The Parkview Building, a multi-tenant office building of approximately 40,000 square feet located at 6745 Engle Road, an office building of approximately 18,000 square feet located at 6751 Engle Road, and an office building of approximately 28,000 square feet located at 6779 Engle Road.  Each of these properties is part of Airport Executive Park, a 50-acre office and flex development located in Cleveland, Ohio, which is owned by Amsdell and Amsdell. Our independent Trustees approved the terms of, and entry into, each of the office lease agreements by the Operating Partnership.  During 2007, the Operating Partnership subleased certain of its lease agreements with Amsdell and Amsdell to a subtenant.

 

The table below shows the office space subject to these lease agreements and certain key provisions, including the term of each lease agreement, the period for which the Operating Partnership may extend the term of each lease agreement, and the minimum and maximum rents payable per month during the term.  The table also shows the fixed minimum rents payable to us by the subtenant per month during the term.

 

Office Space

 

Approximate
Square Footage

 

Term

 

Period of
Extension Option (1)

 

Fixed Minimum
Rent Per Month
due to Amsdell
and Amsdell

 

Fixed
Maximum Rent
Per Month due
to Amsdell and
Amsdell

 

Fixed
Minimum Rent
Per Month due
from Subtenant

 

The Parkview Building – 6745 Engle Road; and 6751 Engle Road

 

21,900

 

12/31/2014

 

Five-year

 

$

25,673

 

$

31,205

 

$

19,011

 

6745 Engle Road – Suite 100

 

2,212

 

12/31/2014

 

Five-year

 

$

3,051

 

$

3,709

 

$

2,350

 

6745 Engle Road – Suite 110

 

1,731

 

12/31/2014

 

Five-year

 

$

2,387

 

$

2,901

 

$

1,839

 

6751 Engle Road – Suites C and D

 

3,000

 

12/31/2014

 

Five-year

 

$

3,137

 

$

3,771

 

$

2,984

 

6779 Engle Road – Suites G and H

 

3,500

 

12/31/2008

 

Five-year

 

$

3,079

 

$

3,347

 

$

0

 

6779 Engle Road – Suite 120

 

1,600

 

4/30/2007

 

Three-year

 

$

1,800

 

$

1,900

 

N/A

 

 

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(1)          The Operating Partnership may extend the lease agreement beyond the termination date by the period set forth in this column at prevailing market rates upon the same terms and conditions contained in each of the lease agreements.

 

In addition to monthly rent, the office lease agreements provide that the Operating Partnership reimburse Amsdell and Amsdell for certain maintenance and improvements to the leased office space.  The aggregate amount of payments by us to Amsdell and Amsdell under these lease agreements for each of the three months ended June 30, 2008 and June 30, 2007 was approximately $0.1 million.  Additionally, the aggregate amount of payments for each of the six months ended June 30, 2008 and June 30, 2007 was approximately $0.2 million.

 

Total future minimum rental payments under the related party lease agreements entered into as of June 30, 2008 are as follows:

 

 

 

Due to Related Party

 

Due from Subtenant

 

 

 

Amount

 

Amount

 

 

 

(in thousands)

 

 

 

 

 

 

 

2008

 

$

234

 

$

157

 

2009

 

453

 

314

 

2010

 

453

 

314

 

2011

 

475

 

314

 

2012

 

475

 

314

 

2013 and thereafter

 

998

 

629

 

 

 

$

3,088

 

$

2,042

 

 

Other

 

During the fourth quarter of 2006, the Company engaged a consultant to assist in establishing certain development protocols and processes. In connection with that assignment, the outside consultant utilized the services of the son-in-law of Dean Jernigan, President and Chief Executive Officer of the Company.  Our payments during the six months ended June 30, 2008 and June 30, 2007 for Mr. Jernigan’s son-in-law’s services totaled $109 thousand and $55 thousand.

 

11.  PRO FORMA FINANCIAL INFORMATION

 

During 2007, the Company acquired 17 self-storage facilities for an aggregate purchase price of approximately $140.5 million. During 2008, the Company acquired one self-storage facility for a purchase price of approximately $13.3 million.

 

The unaudited condensed consolidated pro forma financial information set forth below reflects adjustments to the Company’s historical financial data to give effect to each of the acquisitions and related financing activity that occurred subsequent to January 1, 2007 as if each had occurred at the beginning of each period presented.  The unaudited pro forma information presented below does not purport to represent what the Company’s actual results of operations would have been for the periods indicated, nor does it purport to represent the Company’s future results of operations.

 

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Table of Contents

 

The following table summarizes, on a pro forma basis, our consolidated results of operations for the six months ended June 30, 2008 and 2007 based on the assumptions described above:

 

 

 

Six Months Ended June 30,

 

 

 

2008

 

2007

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

Pro forma revenue

 

$

120,177

 

$

115,008

 

Pro forma loss from continuing operations

 

$

(9,516

)

$

(13,175

)

Loss per common share from continuing operations

 

 

 

 

 

Basic and diluted - as reported

 

$

(0.06

)

$

(0.23

)

Basic and diluted - as pro forma

 

$

(0.06

)

$

(0.23

)

 

12.  COMPREHENSIVE LOSS

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2008

 

2007

 

2008

 

2007

 

NET INCOME (LOSS)

 

$

263

 

$

295

 

$

(3,719

)

$

(3,070

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Unrealized gain on derivative financial instruments

 

2,496

 

 

948

 

 

COMPREHENSIVE GAIN (LOSS)

 

$

2,759

 

$

295

 

$

(2,771

)

$

(3,070

)

 

13.  DISCONTINUED OPERATIONS

 

For the three months ended June 30, 2008 and June 30, 2007, income from discontinued operations relates to five properties that the Company sold during 2008 and five properties sold during 2007.  For the six months ended June 30, 2008 and June 30, 2007, income from discontinued operations relates to seven properties sold during 2008 and five properties sold during 2007.  Each of the sales during 2008 resulted in the recognition of a gain, which in the aggregate totaled $5.3 million and $5.9 million for the three and six months ended June 30, 2008, respectively.

 

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Table of Contents

 

The following table summarizes the revenue and expense information for the properties classified as discontinued operations for the three and six months ended June 30, 2008 and June 30, 2007 (in thousands):

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2008

 

2007

 

2008

 

2007

 

REVENUES

 

 

 

 

 

 

 

 

 

Rental income

 

$

286

 

$

1,000

 

$

838

 

$

2,149

 

Other property related income

 

15

 

69

 

51

 

122

 

Total revenues

 

301

 

1,069

 

889

 

2,271

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

Property operating expenses

 

119

 

542

 

391

 

1,078

 

Depreciation

 

37

 

223

 

132

 

476

 

Total operating expenses

 

156

 

765

 

523

 

1,554

 

OPERATING INCOME

 

145

 

304

 

366

 

717

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

(37

)

 

(86

)

Loan procurement amortization expense

 

 

 

 

(1

)

Interest income

 

 

 

 

1

 

Total other expense

 

 

(37

)

 

(86

)

Income from discontinued operations

 

145

 

267

 

366

 

631

 

Gain on disposition of discontinued operations

 

5,308

 

2,122

 

5,880

 

2,122

 

Minority interest attributable to discontinued operations

 

(442

)

(195

)

(506

)

(226

)

Income from discontinued operations

 

$

5,011

 

$

2,194

 

$

5,740

 

$

2,527

 

 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. The Company makes certain statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled “Forward-Looking Statements.” Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the section in this report entitled “Risk Factors.”

 

Overview

 

The Company is an integrated self-storage real estate company, which means that it has in-house capabilities in the operation, design, development, leasing, and acquisition of self-storage facilities. The Company has elected to be taxed as a REIT for federal tax purposes. At June 30, 2008 and December 31, 2007, the Company owned 403 and 409 self-storage facilities, respectively, totaling approximately 25.9 million square feet and 26.1 million square feet, respectively.

 

The Company derives revenues principally from rents received from our customers who rent units at our self-storage facilities under month-to-month leases. Therefore, our operating results depend materially on our ability to retain our existing customers and lease our available self-storage units to new customers while maintaining and, where possible, increasing our pricing levels. In addition, our operating results are affected by the ability of our customers to make required rental payments to us.  We believe that our decentralized approach to the management and operation of our facilities allows us to respond quickly and effectively to changes in local market conditions.  Emphasis on local, market level oversight and control enhances our ability to optimize occupancy and pricing levels.

 

The Company experiences minor seasonal fluctuations in the occupancy levels of our facilities, which are generally slightly higher during the summer months due to increased activity in housing related moves.

 

The Company focuses on maximizing internal growth - selectively pursuing targeted acquisitions and developments of self-storage facilities. In addition, we intend to selectively dispose of self-storage facilities that no longer meet our operating criteria or that we deem to be in areas that are no longer strategically important to us.  We also may pursue joint ventures to acquire and/or develop self-storage facilities.  We intend to incur additional debt in connection with any such future acquisitions or developments.

 

The Company has one reportable operating segment: we own, operate, develop, and acquire self-storage facilities.

 

The Company’s self-storage facilities are located in major metropolitan areas as well as rural areas and have numerous tenants per facility. No single tenant represents 1% or more of our revenues. The facilities in Florida, California, Texas and Illinois provided approximately 19%, 15%, 8% and 7%, respectively, of total revenues during the quarter ended June 30, 2008.  During the six months ended June 30, 2008, the facilities in Florida, California, Texas and Illinois provided approximately 19%, 15%, 8% and 7%, respectively, of total revenues.

 

Summary of Critical Accounting Policies and Estimates

 

Set forth below is a summary of the accounting policies and estimates that management believes are critical to an understanding of the unaudited condensed consolidated financial statements included in this report. These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Due to this uncertainty, actual results could differ from estimates calculated and utilized by management.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include all of the accounts of the Company, the Operating Partnership and the wholly-owned subsidiaries of the Operating Partnership.

 

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Self-Storage Facilities

 

The Company records self-storage facilities at cost less accumulated depreciation. Depreciation on the buildings and equipment is recorded on a straight-line basis over their estimated useful lives, which range from five to 39 years. Expenditures for significant renovations or improvements that extend the useful lives of assets are capitalized. Repairs and maintenance costs are expensed as incurred.

 

When facilities are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. When a portfolio of facilities is acquired, the purchase price is allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which take into account the relative size, age and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available. Allocations to the individual assets and liabilities are based upon comparable market sales information for land, buildings and improvements and estimates of depreciated replacement cost of equipment.

 

In allocating the purchase price, the Company determines whether the acquisition includes intangible assets or liabilities. Substantially all of the leases in place at acquired facilities are at market rates, as the majority of the leases are month-to-month contracts. Accordingly, to date no portion of the purchase price has been allocated to above- or below-market lease intangibles.  To date, no intangible asset has been recorded for the value of tenant relationships, because the Company does not have any concentrations of significant tenants and the average tenant turnover is fairly frequent.  The Company recorded a $6.8 million intangible asset to recognize the value of in-place leases related to its acquisitions in 2007 and a $1.0 million intangible asset to recognize the value of in-place leases related to its acquisition of a self-storage facility during the first quarter of 2008.

 

Long-lived assets classified as “held for use” are reviewed for impairment when events and circumstances indicate that there may be an impairment. The carrying values of these long-lived assets are compared to the undiscounted future net operating cash flows attributable to the assets. An impairment loss is recorded if the net carrying value of the asset exceeds the fair value based on its undiscounted future net operating cash flows attributable to the asset and circumstances indicate that the carrying value of the real estate asset may not be recoverable. The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset.

 

The Company considers long-lived assets to be “held for sale” upon satisfaction of the following criteria: (a) management commits to a plan to sell a facility (or group of facilities), (b) the facility is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such facilities, (c) an active program to locate a buyer and other actions required to complete the plan to sell the facility have been initiated, (d) the sale of the facility is probable and transfer of the asset is expected to be completed within one year, (e) the facility is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

 

Typically these criteria are all met when the relevant assets are under contract, significant non-refundable deposits have been made by the potential buyer, the assets are immediately available for transfer and there are no contingencies related to the sale that may prevent the transaction from closing. In most transactions, these contingencies are not satisfied until the actual closing of the transaction; and, accordingly, the facility is not identified as held for sale until the closing actually occurs. However, each potential transaction is evaluated based on its separate facts and circumstances.

 

Revenue Recognition

 

Management has determined that all of our leases with tenants are operating leases. Rental income is recognized in accordance with the terms of the lease agreements or contracts, which generally are month-to-month. Revenues from long-term operating leases are recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred revenue, and contractually due but unpaid rents are included in other assets.

 

Share-Based Payments

 

We apply the fair value method of accounting for contingently issued shares and share options issued under our incentive award plans. Accordingly, share compensation expense was recorded ratably over the vesting period relating to such contingently issued shares and options. The Company has elected to recognize compensation expense on a straight-line method over the requisite service

 

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period.  Compensation expense recorded for the three months ended June 30, 2008 and 2007 was approximately $0.9 million and $0.5 million, respectively, and $1.7 million and $0.8 million for the six months ended June 30, 2008 and 2007, respectively.

 

Minority Interests

 

Minority Interests include income allocated to holders of the Operating Partnership units. Income is allocated to the minority interests based on their ownership percentage of the Operating Partnership. This ownership percentage, as well as the total net assets of the Operating Partnership, changes when additional shares of our common stock or Operating Partnership units are issued. Such changes result in an allocation between shareholders’ equity and Minority Interests in the Consolidated Balance Sheets.

 

Recent Accounting Pronouncements

 

In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (FAS 162). Under SFAS 162 , the GAAP hierarchy will now reside in the accounting literature established by the FASB. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements in conformity with GAAP. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” We believe that the adoption of this standard on its effective date will not have a material effect on our consolidated financial statements.

 

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement No. 133 (“SFAS 161”).  SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and the impact of derivative instruments and related hedged items on an entity financial position, financial performance and cash flows.  SFAS 161 is effective on January 1, 2009.  We believe that the adoption of this standard on January 1, 2009 will not have a material effect on our consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141(R)”).  SFAS 141(R) establishes principles and requirements for recognizing identifiable assets acquired, liabilities assumed, noncontrolling interest in the acquiree, goodwill acquired in the combination or the gain from a bargain purchase, and disclosure requirements.  Under this revised statement, all costs incurred to effect an acquisition will be recognized separately from the acquisition.  Also, restructuring costs that are expected but the acquirer is not obligated to incur will be recognized separately from the acquisition.  SFAS 141(R) is effective for the Company beginning with its quarter ending March 31, 2009.  The Company is currently assessing the potential impact on our consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”).  SFAS 160 requires that ownership interests in subsidiaries held by parties other than the parent are to be reported as equity.  In addition, it requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the income statement.  SFAS 160 is effective for the Company beginning with its quarter ending March 31, 2009.  The Company is currently assessing the potential impact on our consolidated financial statements.

 

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value, with unrealized gains and losses related to these financial instruments reported in earnings at each subsequent reporting date.  This statement was effective on January 1, 2008.  We have not elected the fair value option for any of our existing financial instruments on the effective date and have not determined whether or not we will elect this option for any eligible financial instruments we acquire in the future.

 

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement was effective in fiscal years beginning after November 15, 2007.  The FASB has deferred the implementation of the provisions of SFAS No. 157 relating to certain

 

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nonfinancial assets and liabilities until January 1, 2009.  This standard did not materially affect how we determine fair value, but resulted in certain additional disclosures.

 

Results of Operations

 

The following discussion of our results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes thereto. Historical results set forth in the condensed consolidated statements of operations reflect only the existing facilities and should not be taken as indicative of future operations.

 

Acquisition and Development Activities

 

The comparability of the Company’s results of operations is affected by acquisition and disposition activities in 2008 and 2007.  At June 30, 2008 and 2007, the Company owned 403 and 399 self-storage facilities and related assets, respectively.

 

The following table summarizes the acquisition and disposition activity that the Company completed during the period from January 1, 2007 to June 30, 2008:

 

Facility/Portfolio

 

Location
(state/district
abbreviation)

 

Acquisition Date

 

Total
Number of
Facilities

 

Purchase Price
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

2007 Acquisitions

 

 

 

 

 

 

 

 

 

 

Sanford Portfolio

 

TX

 

January 2007

 

1

 

 

$

6,300

 

Grand Central Portfolio

 

GA

 

January 2007

 

2

 

 

13,200

 

Rising Tide Portfolio

 

FL, CA, MA, OH, GA

 

September 2007

 

14

 

 

121,000

 

 

 

 

 

 

 

17

 

 

$

140,500

 

2007 Dispositions

 

 

 

 

 

 

 

 

 

 

South Carolina Assets

 

SC

 

May 2007

 

3

 

 

$

12,750

 

Arizona Assets

 

AZ

 

December 2007

 

2

 

 

6,440

 

 

 

 

 

 

 

5

 

 

$

19,190

 

 

 

 

 

 

 

 

 

 

 

 

2008 Acquisitions

 

 

 

 

 

 

 

 

 

 

Uptown Asset

 

DC

 

January 2008

 

1

 

 

$

13,300

 

 

 

 

 

 

 

 

 

 

 

 

2008 Dispositions

 

 

 

 

 

 

 

 

 

 

Baton Rouge/Prairieville Assets

 

LA

 

June 2008

 

2

 

 

$

5,400

 

Linden Asset

 

Linden, NJ

 

June 2008

 

1

 

 

2,825

 

Edicott Asset

 

Union, NY

 

May 2008

 

1

 

 

2,250

 

Lakeland Asset

 

Lakeland, FL

 

April 2008

 

1

 

 

2,050

 

77th Street Asset

 

Miami, FL

 

March 2008

 

1

 

 

2,200

 

Leesburg Asset

 

Leesburg, FL

 

March 2008

 

1

 

 

2,400

 

 

 

 

 

 

 

7

 

 

$

17,125

 

 

The acquisitions listed are included in the Company’s results of operations from and after the acquisition date.

 

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Comparison of Operating Results for the Three Months Ended June 30, 2008 and June 30, 2007

 

A comparison of net loss for the three months ended June 30, 2008 and June 30, 2007 is as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

 

2008

 

2007

 

REVENUES

 

 

 

 

 

Rental income

 

$

56,158

 

$

50,965

 

Other property related income

 

4,249

 

4,387

 

Other - related party

 

 

122

 

Total revenues

 

60,407

 

55,474

 

OPERATING EXPENSES

 

 

 

 

 

Property operating expenses

 

25,494

 

21,890

 

Property operating expenses - related party

 

 

14

 

Depreciation

 

20,251

 

16,562

 

General and administrative

 

6,469

 

5,648

 

General and administrative - related party

 

 

118

 

Total operating expenses

 

52,214

 

44,232

 

OPERATING INCOME

 

8,193

 

11,242

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

Interest:

 

 

 

 

 

Interest expense on loans

 

(12,965

)

(12,955

)

Loan procurement amortization expense

 

(486

)

(445

)

Interest income

 

32

 

91

 

Other

 

71

 

 

Total other expense

 

(13,348

)

(13,309

)

LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS

 

(5,155

)

(2,067

)

MINORITY INTERESTS

 

407

 

168

 

LOSS FROM CONTINUING OPERATIONS

 

(4,748

)

(1,899

)

DISCONTINUED OPERATIONS

 

 

 

 

 

Income from operations

 

145

 

267

 

Gain on disposition of discontinued operations

 

5,308

 

2,122

 

Minority interest attributable to discontinued operations

 

(442

)

(195

)

Income from discontinued operations

 

5,011

 

2,194

 

NET INCOME

 

$

263

 

$

295

 

 

Total Revenues

 

Rental income increased from $51.0 million for the three months ended June 30, 2007 to $56.2 million for the three months ended June 30, 2008, an increase of $5.2 million, or 10%. This increase is attributable to additional rental income from the same-store properties of $2.8 million, as well as additional rental income from the 2007 and 2008 acquisitions.

 

Other property related income decreased from $4.4 million for the three months ended June 30, 2007 to $4.2 million for the three months ended June 30, 2008, a decrease of $0.2 million, or 5%. This decrease is primarily attributable to a $0.2 million decrease in administrative fees earned.

 

Other – related party decreased from $0.1 million for the three months ended June 30, 2007 to $0 for the three months ended June 30, 2008 due to a decrease in third party management fee income pursuant to the termination of the Rising Tide management agreement in September 2007.

 

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Total Operating Expenses

 

Property operating expenses, including Property operating expenses – related party, increased from $21.9 million for the three months ended June 30, 2007 to $25.5 million for the three months ended June 30, 2008, an increase of $3.6 million, or 16%.  This increase is primarily attributable to additional expense from the same-store assets of $0.7 million in marketing expense, $0.5 million of personnel expense and $0.3 million of real estate taxes, as well as additional operating expenses from the 2007 and 2008 acquisitions.

 

Depreciation increased from $16.6 million for the three months ended June 30, 2007 to $20.3 million for the three months ended June 30, 2008, an increase of $3.7 million or 22%. The increase is primarily attributable to additional depreciation expense related to the 2007 and 2008 acquisitions.

 

General and administrative expenses, including General and administrative – related party, increased from $5.8 million for the three months ended June 30, 2007 to $6.5 million for the three months ended June 30, 2008, an increase of $0.7 million, or 12%.  The primary source of the increase is approximately $0.6 million of due diligence costs that were written off during the 2008 period.

 

Total Other Expenses

 

Additional debt incurred to finance certain 2007 and 2008 acquisitions resulted in additional interest expense during the 2008 period.  However, lower interest rates on variable rate debt in 2008 resulted in no overall increase in interest expense.

 

Discontinued Operations

 

 Gains on disposition of discontinued operations increased from $2.1 million for the three months ended June 30, 2007 to $5.3 million for the three months ended June 30, 2008 as a result of the sale of five assets during the 2008 period as compared to three asset sales during the 2007 period.

 

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Comparison of Operating Results for the Six Months Ended June 30, 2008 and June 30, 2007

 

A comparison of net loss for the six months ended June 30, 2008 and June 30, 2007 is as follows (in thousands):

 

 

 

Six Months Ended June 30,

 

 

 

2008

 

2007

 

REVENUES

 

 

 

 

 

Rental income

 

$

112,191

 

$

100,950

 

Other property related income

 

7,921

 

8,612

 

Other - related party

 

 

239

 

Total revenues

 

120,112

 

109,801

 

OPERATING EXPENSES

 

 

 

 

 

Property operating expenses

 

50,757

 

44,554

 

Property operating expenses - related party

 

 

51

 

Depreciation

 

40,153

 

33,088

 

General and administrative

 

11,964

 

11,563

 

General and administrative - related party

 

 

219

 

Total operating expenses

 

102,874

 

89,475

 

OPERATING INCOME

 

17,238

 

20,326

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

Interest:

 

 

 

 

 

Interest expense on loans

 

(26,791

)

(25,732

)

Loan procurement amortization expense

 

(957

)

(889

)

Interest income

 

91

 

204

 

Other

 

139

 

(6

)

Total other expense

 

(27,518

)

(26,423

)

LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS

 

(10,280

)

(6,097

)

MINORITY INTERESTS

 

821

 

500

 

LOSS FROM CONTINUING OPERATIONS

 

(9,459

)

(5,597

)

DISCONTINUED OPERATIONS

 

 

 

 

 

Income from operations

 

366

 

631

 

Gain on disposition of discontinued operations

 

5,880

 

2,122

 

Minority interest attributable to discontinued operations

 

(506

)

(226

)

Income from discontinued operations

 

5,740

 

2,527

 

NET LOSS

 

$

(3,719

)

$

(3,070

)

 

Total Revenues

 

Rental income increased from $101.0 million for the six months ended June 30, 2007 to $112.2 million for the six months ended June 30, 2008, an increase of $11.2 million, or 11%.  This increase is attributable to additional rental income from the same-store properties of $6.0 million, as well as additional rental income from the 2007 and 2008 acquisitions.

 

Other property related income decreased from $8.6 million for the six months ended June 30, 2007 to $7.9 million for the six months ended June 30, 2008, a decrease of $0.7 million, or 8%. This decrease is primarily attributable to a $0.6 million decrease in administrative fees earned.

 

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Other – related party decreased from $0.2 million for the three months ended June 30, 2007 to $0 for the three months ended June 30, 2008 due to a decrease in third party management fee income pursuant to the termination of the Rising Tide management agreement in September 2007.

 

Total Operating Expenses

 

Property operating expenses, including Property operating expenses – related party, increased from $44.6 million for the six months ended June 30, 2007 to $50.8 million for the six months ended June 30, 2008, an increase of $6.2 million, or 14%.  This increase is primarily attributable to additional expense from the same-store assets of $0.5 million in marketing expense, $0.8 million of personnel expense and $0.7 million of real estate taxes, as well as additional operating expenses from the 2007 and 2008 acquisitions.

 

Depreciation increased from $33.1 million for the six months ended June 30, 2007 to $40.2 million for the six months ended June 30, 2008, an increase of $7.1 million, or 22%. The increase is primarily attributable to additional depreciation expense related to the 2007 and 2008 acquisitions.

 

General and administrative expenses, including General and administrative – related party, increased from $11.8 million for the six months ended June 30, 2007 to $12.0 million for the six months ended June 30, 2008, an increase of $0.2 million, or 2%. The primary source of the increase is approximately $0.6 million of due diligence costs that were written off during the 2008 period.

 

Total Other Expenses

 

Interest expense increased from $25.7 million for the six months ended June 30, 2007 to $26.8 million for the six months ended June 30, 2008, an increase of $1.1 million, or 4%.  The change is primarily attributable to additional debt incurred to finance certain 2007 and 2008 acquisitions, which resulted in additional interest expense during the 2008 period.  However, lower interest rates on variable rate debt in 2008 reduced the overall increase in interest expense.

 

Discontinued Operations

 

 Gains on disposition of discontinued operations increased from $2.1 million for the six months ended June 30, 2007 to $5.9 million for the six months ended June 30, 2008 as a result of the sale of seven assets during the 2008 period as compared to three asset sales during the 2007 period.

 

Same-Store Facility Results

 

The Company considers its same-store portfolio to consist of only those facilities owned at the beginning and at the end of the applicable periods presented. The following same-store presentation is considered to be useful to investors in evaluating our performance because it provides information relating to changes in facility-level operating performance without having to adjust for the effects of acquisitions, developments or dispositions. The following table sets forth operating data for our same-store portfolio for the periods presented.

 

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Comparison of the Three Months Ended June 30, 2008 to the Three Months Ended June 30, 2007

 

The following table provides information pertaining to our same-store portfolio for the three months ended June 30, 2008 and 2007 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

Properties

 

Other/

 

 

 

 

 

 

 

 

 

 

 

Same Store Property Portfolio

 

Acquired

 

Eliminations

 

Total Portfolio

 

 

 

 

 

 

 

Increase/

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase/

 

%

 

 

 

2008

 

2007

 

(Decrease)

 

Change

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

(Decrease)

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

52,804

 

$

49,991

 

$

2,813

 

6

$

3,354

 

$

974

 

$

 

$

 

$

56,158

 

$

50,965

 

$

5,193

 

10

%

Other property related income

 

4,008

 

4,232

 

(224

)

-5

%  

241

 

155

 

 

 

4,249

 

4,387

 

(138

)

-3

%

Other - related party

 

 

 

 

 

 

122

 

 

 

 

122

 

(122

)

-100

%

Total revenues

 

56,812

 

54,223

 

2,589

 

5

%

3,595

 

1,251

 

 

 

60,407

 

55,474

 

4,933

 

9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

21,681

 

19,888

 

1,793

 

9

%

1,858

 

197

 

1,955

 

1,805

 

25,494

 

21,890

 

3,604

 

16

%

Property operating expenses - related party

 

 

 

 

 

 

 

 

14

 

 

14

 

(14

)

-100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

21,681

 

19,888

 

1,793

 

9

%

1,858

 

197

 

1,955

 

1,819

 

25,494

 

21,904

 

3,590

 

16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET OPERATING INCOME:

 

$

35,131

 

$

34,335

 

$

796

 

2

%

$

1,737

 

$

1,054

 

$

(1,955

)

$

(1,819

)

34,913

 

33,570

 

1,343

 

4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation